By John Hayward
Article Source
New Zealand’s government data agency, Stats NZ, released Gross Domestic Product (GDP) figures Thursday that showed the economy slipped into recession in the first quarter of 2023. GDP was down by a seasonally-adjusted 0.1 percent as of March.
A recession is defined as two consecutive quarters of negative growth, and since New Zealand’s GDP slipped by 0.7 percent in the last quarter of 2022, Stats NZ declared the first technical recession since the lockdown-hobbled pandemic nightmare year of 2020.
The final numbers for the first quarter were a considerable disappointment, as the New Zealand Reserve Bank had anticipated 0.3 percent growth, not a 0.1 percent contraction, and the Treasury Department predicted a recession would be avoided altogether.
Radio New Zealand (RNZ) reported that almost every sector of the economy either slowed or contracted:
Business services were the biggest downwards driver, falling 3.5 percent, Stats NZ said.
“Management consulting, advertising, scientific, and engineering design services drove the fall in business services,” Stats NZ economic and environmental insights general manager Jason Attewell said.
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Agriculture, forestry and fishing contracted 0.7 percent, manufacturing fell 1.1 percent, and education and training fell 1.9 percent.
Stats NZ pointed to “adverse weather events” causing disruptions in agriculture, transportation, and education as major factors.
In January and February, New Zealand was battered by Cyclones Hale and Gabrielle; the latter is regarded as the worst storm of the century to date. Thousands of people were displaced by floods and landslides, and some of those people were very reluctant to return to the devastated areas.
Kiwibank chief economist Jarrod Kerr told RNZ the outlook for the rest of 2023 “remains awkward, to put it politely,” with further contractions possible all the way into early 2024.
Kerr and other economists pointed to inflation and rising interest rates as the major long-term threats, as consumers reduce spending and businesses pull back on investment. Inflation is almost seven percent in New Zealand presently, while the Reserve Bank of New Zealand’s main interest rate is 5.5 percent, compared to a U.S. rate of 5.25 percent.
According to StatsNZ, the real drop in GDP during the first quarter would be even worse, 0.2 percent, if computed based on consumer, business, and government spending. The only bright spot was increased household spending on travel, which rose substantially even as New Zealanders cut back on purchases of goods and local services. Travel spending soared after New Zealand removed the coronavirus lockdown on its borders last summer.
New Zealand slid into outright authoritarianism during the coronavirus pandemic with some of the world’s strictest lockdowns and wound up with surges of Wuhan coronavirus infection and death anyway. The socialist government of then-Prime Minister Jacinda Ardern ordered a three-day snap lockdown in August 2021 over a single case of coronavirus transmission.
New Zealanders became nervous about traveling because border lockdowns could prevent them from returning home. In one memorable case, a pregnant journalist named Charlotte Bellis turned to the Afghan Taliban for help after she was locked out of her home country.
New Zealand’s economy contracted sharply from the lockdowns, especially in the tourist industry. Like other countries that embraced lockdowns, New Zealand implemented gigantic government spending programs, including extended unemployment benefits for an imprisoned population that could not work. The architect of the lockdowns, left-wing authoritarian Prime Minister Jacinda Ardern, resigned in January 2023 facing plummeting approval ratings and a struggling economy.
The Reserve Bank said last year it would accept a recession as the cost of bringing inflation down; although, as noted above, it incorrectly predicted the recession would be narrowly avoided. Some economists believe the bad news from the first quarter will prompt the bank to compensate by cutting interest rates.
“It’s hard to diagnose this ‘technical recession’ as anything but part of the necessary adjustment toward putting the economy back on a sustainable path after too much fiscal and monetary stimulus was delivered in the wake of Covid-19,” ANZ Bank senior economist Miles Workman told the Wall Street Journal (WSJ) on Tuesday.
The WSJ noted that the Cyclone Gabrielle recovery plan weighed in at 687 million U.S. dollars, a gigantic spend by New Zealand standards. Economists warned it could “stimulate the economy and add to inflation.”
The International Monetary Fund (IMF) said Wednesday that New Zealand’s economy is “in the midst of a necessary, policy-induced slowdown following the strong post-pandemic recovery.”
The IMF advised New Zealand not to overcompensate for the recession by lowering interest rates, predicting, instead, that more interest rate hikes could be necessary.